Whether the economy stinks or not, there will always be small businesses that are struggling along chasing the ever elusive cash flow. It’s a universal problem that gets aggravated with the cycles of the economy. Some small businesses can survive a downturn in cash flow, but many will wither and die because they wait too long to take action. It’s time to take charge of your cash flow and make it work for your business. Here are five easy ways to do just that.
1. Stop Being a Bank For Your Customers – If you get paid as soon as you sell something, this tip won’t help you much. But for the thousands of you who sell on credit (yes, credit) by performing a service, invoicing and then getting paid after the work is complete, this tip will help you a bunch. Most small business owners set due dates as “Net 30.” Who invented that rule? I’m here to tell you that you can make your invoice due date anything you want. And for the health of your business, make it short! How does “Due on Receipt” or “Net 5” sound to you? Change your due date now.
2. Get Those Bills Out The Door Pronto – Have you ever heard of a customer paying a bill they didn’t get? Me neither. Way too often I hear small business owners (and many solopreneurs) say, “Oops, I forgot to get my invoices out this month.” That is not a quick road to healthy cash flow. Get that invoice out the door as soon as the work is completed. You don’t have to wait until the first of the month or a set amount of days to bill. This is under your control. Do it the day the work is completed and you’ll have your payment in hand sooner.
3. Set Up A Chunky Payment System – You run a big risk if you do work and then wait to get paid for it. A better way is to set up your client agreement using milestones and then get paid on an incremental basis. There are no rules that say you must do the work and then get paid. Remember, you are not a bank (see Tip #1). When you negotiate your next contract, set it up so you receive a portion of the payment when you begin, another portion when you are half done and the rest when the project is complete. Split your project up into logical delivery points and bill at each one of those points.
4. Package Your Cash In Bundles – Package your products or services to deliver on a regular basis and take advantage of recurring billing. Set up an “of the month club” or an exclusive membership that your customers can subscribe to and pay you a standard fee every single month. This can work well whether you sell products or services. Make sure you bill at the beginning of the month for the recurring payment, not at the end.
5. Quit Wondering Where Your Cash Is – Just because you get your invoices out the door, doesn’t mean you will get paid. You absolutely must stay on top of your outstanding invoices. To get your cash quicker, offer a discount for early payment. I’ve never met a person who doesn’t like to save money. Offer a small discount — two to five percent — to your customers for paying earlier than your “standard” time frame. Make sure you have this built into your pricing so you don’t lose money on the deal.
So there you go. Take at least one of these tips and put it into action in your business today. And your business will soon be one that not only survives, but thrives.
Small Business Expert Denise O’Berry is the author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success and the host of the Little Big Show where you’ll find lots more helpful tips for your business.
This article is from the SmallBizLady special blog series: 31 Ways to Boost Your Small Business in 2013. #Boost2013